The first mention of a ruler in the regained territories east of the Enns is of Burchard, who probably was count (burgrave) of Regensburg. It appears that he lost his office as a result of his championship of Henry II the Quarrelsome, duke of Bavaria. In 976 his successor, Leopold I of the house of Babenberg, was installed in office. Under Leopold’s rule the eastern frontier was extended to the Vienna Woods after a war with the Magyars. Under his successor, Henry I, the country around Vienna itself must have come into German hands. New marches were also created in what were later known as Carniola and Steiermark.

Wars against Hungarians and Moravians occupied the reign (1018–55) of Margrave (a count who ruled over a march) Adalbert. Parts of Lower Austria on both sides of the Danube were lost temporarily; after they were retaken, they became the so-called Neumark (New March), which for some time enjoyed independence—as did the Bohemian March to the north of the Babenberg territories. The position of the Babenbergs was at that time still a modest one; their territorial rights were no greater than those of other leading noble families. Their power within their own official sphere was further diminished by ecclesiastical immunities (Passau in particular but also Salzburg, Regensburg, and Freising), with numerous monasteries owning large territories as well.

Austria was repeatedly drawn into the disputes of the Investiture Controversy, in which Pope Gregory VII and King Henry IV (later Holy Roman emperor) fought for control of the church in Germany. In 1075 Margrave Ernest, who had regained the Neumark and the Bohemian March for his family, was killed in the Battle of the Unstrut, fighting on the side of Henry IV against the rebellious Saxons. Altmann, bishop of Passau, a leader of church reform and a champion of Gregory VII, influenced the next Babenberg margrave, Leopold II, to abandon Henry’s cause. As a result, Henry roused the Bohemian duke Vratislav II against him, and in 1082 Leopold II was defeated near Mailberg, his territories north of the Danube devastated. The Babenbergs, however, managed to survive these setbacks. Meanwhile, the cause of church reform gained ground, with its centres in the newly founded monasteries of Göttweig, Lambach, and, in Steiermark, Admont.

Under Leopold III (1095–1136) the history of the Babenbergs reached its first culmination point. In the struggle between emperor and pope, Leopold avoided taking sides until a consensus had built up among the German princes that it was Emperor Henry IV who stood in the way of a final settlement. Then Leopold did not hesitate to side with Henry’s rebellious son, Henry V, in 1106. For this he was rewarded with the hand of Henry V’s sister Agnes, who had formerly been married to the Hohenstaufen Frederick I of Swabia. The intermarriage with the reigning dynasty not only increased Leopold’s reputation but also no doubt brought him additional power. Leopold was even proposed as a candidate to the royal throne, but he declined. It was apparently his intention to concentrate on consolidating his position in Austria. He was the first Austrian margrave to describe himself as the holder of territorial principality (principatus terrae), and during his time Austrian common law was mentioned for the first time, another proof of the developing national consciousness.

Leopold’s reputation with the clergy was high, and he was eventually canonized (1485). He gave generous endowments to religious communities, establishing the Cistercians at Heiligenkreuz, and he founded, or at least restored, the monastery of Klosterneuburg, which he then gave to Augustinian canons. In Klosterneuburg he built a residence in which he stayed even after he had acquired Vienna.

On the death of Leopold III, the Babenbergs were drawn into a conflict between the two leading dynasties of Germany, the Hohenstaufen and the Welfs; the Babenbergs took the side of the Hohenstaufen because of their family ties. In 1139 the German king Conrad III bestowed Bavaria, which he had wrested from the Welfs, on his half brother, Leopold IV. After the latter’s untimely death, Henry II Jasomirgott succeeded to the rule of Austria and Bavaria.

The Holy Roman emperor Frederick I (Barbarossa) tried to put an end to the quarrel between the Welfs and the Hohenstaufen, and, in the autumn of 1156 at Regensburg, he arranged a compromise. Bavaria was restored to the Welf Henry III (the Lion), duke of Saxony, while the Babenbergs were confirmed in their rule of Austria, which was made a duchy, and were given the “three counties,” the actual location of which is disputed. Also, the obligations of the dukes of Austria toward the empire were reduced. Their attendance at royal court days was called for only when court was held in Bavaria, and they were compelled to participate only in campaigns of the empire that were directed against Austria’s neighbour—that is, Hungary. Henry II Jasomirgott and his wife, Theodora, a Byzantine princess, were granted succession through the female line and the right, in the event of the premature deaths of their children, to appoint a candidate for the succession. The Babenbergs also were given the right of approving the exercise of jurisdiction by other powers within the new duchy, permitting Henry to exert pressure against rival internal powers, secular as well as ecclesiastical. The rights of the duke were laid down by imperial charter (Privilegium Minus). For centuries, however, Austria continued to contain territorial dominions not ruled by the duke. Henry moved his residence to Vienna, where he also founded the monastery of the “Scottish” (actually Irish) monks.